Economic Highlights for the Week Ending November 16, 2007
MONDAY, November 12th
VETERANS DAY, Observed
Bond Market ClosedStock and Futures Markets Open
TUESDAY, November 13th
The NAR's pending home sales index which tracks the number of signed real estate contracts that have not yet closed, rose to 85.7% in September from a reading of 85.5% in August. However, the index remains 20.4% below its year ago level of 107.6%. The current low level of the index and the steep drop off from last year implies that home sales will remain weak in the fourth quarter. Despite this, NAR's chief economist points out existing home sales will be the fifth highest on record in 2007 with median prices declining by less than 2%.
The government ran a $55.6 billion budget deficit in October compared to a $49.3 billion deficit in October 2006. October is the first month of the government's fiscal year. The budget picture improved in FY2007 with total budget deficit of $163 billion, which is 61% lower than FY2004 when the deficit peaked at $412 billion. As a share of GDP the budget deficit in FY2007 was 1.2% compared to 3.6% in FY2004. The federal deficit is set to widen again this fiscal year due to slower economic growth and weaker corporate tax revenues.
WEDNESDAY, November 14th
Retail sales rose 0.2% in October better than expectations for a 0.1% increase. Regardless, sales growth was weak. Sales at gasoline stations led October's gain. Motor vehicle sales also gained 0.2% on the month. Excluding both motor vehicles and gasoline sales spending rose 0.1%. Spending has been trending lower in recent months and faces downside risks as consumers face the headwinds of a weaker housing market, tighter credit, slower job growth and rising energy costs going forward.
The producer price index rose only 0.1% in October compared to an expected 0.3% gain. Food prices shot up 1.0% but energy costs dipped 0.8%. Excluding food and energy from the index, core producer prices were unchanged last month. Over the past year the PPI increased 6.0% while core prices gained 2.5%. Despite elevated yearly gains, wholesale inflation growth has been slower in recent months leaving some maneuverability for the Fed next month.
The MBA mortgage applications index jumped 5.5% to 707.3% for the week ending November 9. The purchase index climbed 4.8% last week as the refinance index increased 6.4%. Mortgage demand has increased in 5 of the last 6 weeks and remains 9.0% above last year's level.
THURSDAY, November 15th
The consumer price index rose 0.3% in October, matching expectations. A 1.4% gain in energy prices led the gain last month. Over the past year consumer inflation has risen 3.5%. Excluding the volatile food and energy components from the index, core consumer prices rose 0.2% on the month and were up 2.1% on the year, very tame and well within the Fed's comfort zone for inflation.
Jobless claims jumped 20k to 339k for the week ending November 10. Initial jobless claims are now at the upper end of the 300k to 340k range that has been in place since the second half of 2006. The elevated level of claims is consistent with weaker job creation over the past few months though the labor market in total is only modestly weaker than it was in 2006.
FRIDAY, November 16th
Industrial production fell 0.5% in October as output declined in all three major industry groups. Manufacturing fell 0.4%, mining dropped 0.6% while utilities plunged 1.6%. Broad based weakness led to lower resource usage. The amount of capacity utilized for output last month fell to 81.7% from 82.2% in September.

Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13176.79 13042.74 +134.05 or +1.03%
NASDAQ 2637.24 2627.94 +9.30 or +0.35%
WEEK IN ADVANCE
The holiday shortened week yields the latest readings on homebuilders' sentiment and the pace of new construction starts. With inflationary pressures under control at the moment, it will be the severity of economic weakness that will be the deciding factor on the Fed’s next move. Further weakness is expected from housing sector indicators; the question is how deeply it will impact the broader economy. We are already seeing evidence of spillover.

Economic Highlights for the Week Ending November 2, 2007
Monday, October 29th
Fed funds futures traders are fully pricing in a quarter point rate cut at the conclusion of the FOMC's two day meeting this week. With October's rate cut in the bag, markets are turning their attention to the next policy setting session in December. Odds are roughly 50/50 the Fed will cut again to 4.25% by year's end. The Fed's policy statement Wednesday should help to firm the interest rate outlook.
Tuesday, October 30th
Consumer confidence fell to 96.5% in October to its lowest level since October 2005. It seems surging oil prices, weak housing markets, tighter credit and sluggish job growth are weighing on consumer attitudes. Improvement in these issues should help to moderate declines and restore confidence going forward.
The S&P/Case-Shiller 10-metro monthly house price index fell by 5.0% in August, its fastest downward pace in more than 16 years. The 20-metro index dropped by 4.4%, showing that the decline is broad based and that lack of credit is affecting housing demand. Markets such as Tampa, Miami, San Diego, Las Vegas and Phoenix, markets that thrived in the boom days, are now the ones depreciating most rapidly.
Wednesday, October 31st
The MBA mortgage applications index rose 3.8% to 681.7% for the week ending October 26. Purchase applications fell 0.7% while refinance applications rose 9.2%. A drop in rates boosted refi activity while purchasing activity was flat as potential home buyers remain sidelined, waiting for a signal home prices have stabilized.
GDP grew at a 3.9% pace in Q3 lifted by strong consumer spending and net exports. The major weakness in Q3 economic growth was residential investment which took a full point off of growth. Economy-wide inflation eased to a rate of 0.8% from a 2.6% pace in Q2.
Construction spending increased 0.3% in September led by strong non-residential building and public projects. Residential construction spending fell 1.4% on the month reflecting the plunge in housing starts. Economists expect roughly a 10% decline in residential construction this year, then a modest gain in the beleaguered sector in 2008.
The FOMC trimmed the fed funds rate by 25 bps to 4.50% and the discount rate by the same amount to 5.0% following their policy setting meeting the last two days. The largely expected rate cut was tempered with language cautioning financial markets not presume that the FOMC is in the midst of a long, sustained rate-cutting cycle. The Fed indicated that growth and inflation risks are roughly balanced going forward. The statement also asserted that policy action to date should help shield the broader economy from adverse effects of the housing downturn and help with goals of moderate growth and price stability over the longer term.
Thursday, November 1st
The ISM manufacturing index slid to 50.9% in its fourth straight monthly decline. The index level indicates that the factory sector is still expanding, albeit very slowly. If weakness persists it could detract from Q4 GDP.
Personal income rose 0.4% in September as consumer spending gained 0.3%. Both were in line with expectations. A closely watched inflation gauge contained in this data series, the core PCE price deflator rose 0.2% on the month and was up 1.8% on the year, well within the Fed's comfort zone for inflation.
Mortgage rates declined to their lowest level in six months this week on continued concerns of weaker economic growth and further declines in the housing market. 30-year fixed rate mortgages averaged 6.26% this week compared to 6.33% last week according to Freddie Mac's mortgage market survey.
Friday, November 2nd
Payroll employment increased by 166,000 in October, double what economists were expecting. Service sector job creation was especially strong. The unemployment rate was unchanged at 4.7%. The report eases concerns of a housing induced slowdown in the broader economy and makes further rate cuts unlikely in the near term.
Stock Market Close for the Week
Index Latest A Week Ago Change
DJIA 13595.10 13806.70 -211.60 or -1.53%
NASDAQ 2810.48 2804.19 +6.30 or +0.22%
WEEK IN ADVANCE
The Fed's policy statement and subsequent data this week went a long way toward establishing solid economic performance and future policy decisions. Based on the economic calendar, oil prices and inflation will likely move to the forefront in the coming week as the Fed and financial markets continue to assess the risks to the economy.
Sources: IBC' s Money Fund Report; Bank Rate Monitor; Federal Home Loan Bank of San Francisco